Dollar index climbs for an eighth session

‘High beta’ Australian dollar slips toward parity

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SAN FRANCISCO (MarketWatch) — The U.S. dollar extended its rally against most other major currencies Wednesday, while the euro continued to weaken, trading below $1.30 as investors weighed the likelihood of Greece exiting the shared currency.

The ICE dollar index
DXY, -0.30%
which measures the dollar’s performance against a basket of six other currencies, rose to 80.083, off the session’s high of 80.272 but up from 79.719 late Tuesday.

The move extended the dollar’s longest string of gains since 2008, as investors sought safety amid worries about the health of Spain’s banks as well as Greece’s potential exit from the euro zone.

The dollar index has been climbing for eight sessions.

The euro
EURUSD, +0.4665%
bought $1.2954, slightly above the day’s low of $1.2910, but still down from $1.3014 in North American trade late Tuesday.

The board of directors of the euro-zone rescue fund said in a statement on Wednesday that it will hold back on disbursing 1 billion euros ($1.29 billion) of aid to Greece which was supposed to be part of a 5.2 billion-euro tranche.

As part of its international bailout, Greece will receive 4.2 billion euros on Thursday, the European Financial Stability Facility said. Read more on the Greek aid.

The European Union “certainly needs to take additional steps to address the sovereign debt crisis as the region faces a risk for a prolonged recession,” said David Song, currency analyst at DailyFX, in emailed comments.

As the European Central Bank “sees the economy contracting in 2012, it will become increasingly difficult for the central bank to vindicate its wait-and-see approach, and we may see a growing rift within the governing council as the fundamental outlook for the region remains clouded with high uncertainty,” he said in emailed comments.

New elections beckon for Greece

(5:20)

Financial markets' relatively calm reaction to the Greek turmoil mask rising risks that Greece is on a road that leads to its exit from the euro zone, with hard-to-predict consequences. (Photo: Getty)

Greece may have to hold another election as early as next month, with the nation’s parties appearing increasingly unlikely to cobble together a coalition after splintered results in Sunday’s parliamentary poll.

“Without decisive leadership, markets are questioning the ability and willingness of [Greece] to adhere to austerity measures required in order to receive future aid payments,” said Eric Viloria, senior currency strategist at Forex.com, in a note.

In Spain, government bonds saw renewed pressure, with the 10-year yield (10YR_ESP) surging above the psychologically important 6% threshold Wednesday for the first time since April. Read more on Spain and Greece.

The breach above 6% in Spanish bond yields “fueled speculation that Spain will ultimately seek a bailout as it struggles to tap the financial markets,” said Song.

Aussie dollar falls

The Australian dollar
AUDUSD, +0.1508%
which reacts strongly to shifts in risk appetite, traded at $1.0058, down from $1.0125 late Tuesday.

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